The global trade business remains one of the most lucrative industries anyone could venture into. From trading oil to bitumen, zinc ore, manganese, agricultural products, and much more, playing a critical role as an entrepreneur in the import/export business can help you generate anywhere from a few thousands to millions of dollars monthly in revenue.
While the import/export business may be highly attractive to entrepreneurs who want to start a business with great potentials to generate large revenues, not playing your cards right or making silly mistakes can cause you to lose a great portion of your investments.
If you intend to grow a successful global trade business, here are 14 common import/export mistakes to avoid at all costs:
1). Pay Attention To The Exchange Rates:
Currency fluctuations can greatly affect your profit margins positively or negatively. From the time of negotiations to the point of shipping, and eventual delivery, the value of both countries’ currencies with respect to the US dollar could greatly fluctuate, leaving one party with a higher loss and another with a higher profit.
To avoid this, it’s important you speak with your bankers on the best course of action and then come to an agreement with the other party on how to proceed, considering the risks of changing currency values.
This way, you can lock-down your profits and reduce your overall exposure to risks.
2). Constantly Update Yourself With What You Can Import/Export And What You Can’t:
Agreeing to export or import almost anything without checking what either country allows or doesn not allow is the fastest way to lose your money in the global trade business. As a global trade entrepreneur, you should always ensure you know what is on the allowed or prohibited list of every country, including yours.
If you export or import the wrong item, you may not just lose your investments, but may also go to jail. So doing a careful research on every item that can or cannot be exported or imported is key to success.
3). Build Good Relationships With The Customs Officials:
Building great relationships with the customs officials is a must for anyone involved in the global trade business. They are responsible for checking what comes in or goes out of a country, and as such, will be in the position to point out what you’re violating or not.
Usually, people build relationships with these officials after they’ve been found wanting. But whatever the case may be, you should always show you’re willing to listen, learn, and do whatever you’re told to ensure you’re compliant with any policy that’s brought to your attention.
4). Pay Attention To Local/Foreign Laws In Terms Of Packaging, Marking, and Language:
Every country has a standard for what it lets to come into its region or not. These standards are usually in terms of the product quality, packaging, marking, and language.
Before you ship any product to any country, ensure you get the exact product specifications from the buyer or freight provider, and if possible, find out from the country’s chamber of commerce, export promotion council, or customs officials on what the country’s laws are on the importation of items like that. This way, you can be certain of the exact quality, packaging, marking, and language on the product that is allowed.
5). Keep Detailed Records Of Every Transaction:
Every customer, sale, or product shipped must be duly recorded and accounted for. The tax bodies will come calling at some point, and you’d be required to show every transaction you’ve done and how compliant you’ve been.
It is also important to keep records because of unknown events that could come up in the future, like an investigation on money laundering charges and all.
When you keep records, you ensure your business stays perfectly in line with the law of whichever country you operate in.
6). Learn What Incoterm Laws Are:
There are several laws that govern the global trade business, and one of such that must be understood by any importer/exporter are the Incoterm Laws. These laws are essential for use in contracts for the global trade of any product. Not understanding the responsibilities or costs that are accrued from using a certain Incoterm can cause you to get underpaid by the buyer or to overpay the supplier.
If you have no idea on how Incoterm laws work, you could reach out to a global trade expert to guide you on every contract you intend to sign or not.
7). Verify The Source/Supplier Of The Product And The Buyer Of The Product:
Before you proceed to pay for any product or service, it is important you get full information about the supplier or the origin of the product.
Some questions to ask are:
- Does the supplier have a website or any form of online presence?
- Are they listed on public global trading platforms?
- Does the supplier have a good track record?
- How many years have they been in operation?
- Have they been previously indicted for any crimes?
- Is the product exactly where they say it is?
- Do they have the full rights to the product?
- Could it possibly be a stolen good?
- Can the local chamber of commerce or export promotion council give any information about the supplier?
- Are they a duly registered business in their country?
Not doing a due diligence on the supplier or even the buyer in any transaction could get either party in a lot of trouble when something goes wrong with the transaction.
8). Avoid Making Any Form Of Bribe:
Every country has a process they use to handle cases of bribery and corruption. You must try to stay clear of every temptation to pay a bribe to cut corners. Bribery will do nothing but get you into trouble on the long-run, if not immediately.
Be aware of all the laws, and be careful with how you choose to proceed.
9). Agree Upfront On The Best Form Of Payment:
How have you both agreed to make payments for the goods sold? Is it on arrival? Is it prior to arrival? How exactly?
Taking care of the way payments are made is very crucial to the success of any global trade business. You need to ensure that both parties are secure in the transaction and that if you ship an item half-way around the world to a buyer, that they won’t just reject it and refuse to pay despite the item meeting their specifications and causing the supplier to lose thousands or possibly millions of dollars.
One thing you can do is to ensure the buyer places a Letter Credit from his bank to your bank to guarantee payment, while your bank responds by posting a 2% performance bond of the total value of the item.
When you do this, you both guarantee yourselves of delivery and monetary security for both parties in terms of non-performace on the end of any other.
10). Properly Insure The Goods:
Ships sink, goods get damaged, products get stolen, and many other vices do happen in the process of shipping goods internationally.
While most people try to save costs by avoiding the high premiums insurance companies charge on goods to be exported, when something goes wrong in the process they lose greatly.
If you’re running an import/export business, a mistake you must never make is not to insure your goods properly before they leave for their Ports of Destination.
11). Avoid Going With The Cheapest supplier or Shipper:
Anything that’s too cheap is usually too good to be true. People who import products from many countries around the world know this to be correct, and so, try to avoid going for the cheapest supplier in the market.
While the cheapest supplier is probably going to ship substandard products to you, the cheapest shipper may not have the proper plans or insurance packages in place for your goods. Their vessels may be poorly maintained or secure, and they may not be in good standings with the customs officials of the country they’re shipping your goods to.
To be safe, always go with a known name in the market that is neither too expensive nor too cheap. This way, you can have a better guarantee on the delivery of quality products to you.
12). Don’t Undervalue Your Products:
Undervaluing your products can have terrible repercussions in terms of both insurance and customs clearance. If it is realised that the value of the product was faked to reduce the insurance premium or avoid large customs duties, it would be tagged as a fraud, the products will get confiscated, and if the buyer is found, he could get arrested and possibly imprisoned.
The price on the commercial invoice must always reflect the true price of the product, so that issues don’t arise in the process.
13). Ensure The Right And Complete Information About The Products Are Submitted:
The description of every product exported or imported must be very accurate. Products that are concealed or described wrongly to evade customs oversights will always be confiscated.
Also, it is important that the product exported is the same name as the product mentioned in the Letter of Credit. If the name is different, you could experience shipment and payment delays because what is to be delivered isn’t the same thing that the freight provider knows it is shipping, and also not what the bank knows it is paying for.
14). Avoid All Forms Of Delays:
Delays can cause you to lose a lot of money and opportunities. Whenever a prospect reaches out requesting information for a potential purchase, it’s up to your organisation to act fast on it, else you could lose the opportunity to build a long-term partnership that could guarantee your organisation earns any from a few thousand to millions of dollars monthly for a year to five years.
Asides acting fast on opportunities, delaying the payments of customs duties or acting on cashing in the Letter of Credit as your payment for goods supplied could cost you greatly because every day your cargo remains with the customs, you incur demurrage costs, and if you don’t act on time to clear them, the products could be totally forfeited.
As for the Letter of Credit guaranteeing payment, it usually has a duration in which it can be cashed out. And if the duration expires before you can successfully convert it to your payment for goods sold, getting paid could become a major problem for you.
To Sum It Up
A lot of problems can arise in every global trade process, but these 14 import/export mistakes are some of the most common, meaning every global trade expert must spend valuable time ensuring they don’t make any of them.
What are your thoughts on these 14 common import/export mistakes global traders make? Let me know by leaving a comment below.